Research on Pricing Strategy of Upstream and Downstream Firms Based on Vertical Production Differentiation in Downstream Market

We study the pricing strategy of upstream and downstream firms based on vertical product differentiation in downstream market.The main topics includes the effect of three channel power on the quality and price of downstream product,and product price of upstream and downstream market,and consumer 's surplus and social welfare.The research results are as follows.(1)Upstream firm implements price discrimination strategy under three channel power structures,which the wholesale price of downstream high-quality firm is higher than that of downstream low-quality firm.(2)Whether upstream firm or downstream firm acts as the channel leader,the downstream firms will increase their product quality and price and decrease their output.(3)The profit of upstream firm(or downstream firm) will be highest by becoming the leader and will be least by becoming the follower.In addition,there is high-quality advantage under three channel power structures.(4)Whether consumers purchase the high-quality product or the low-quality product,the consumer's surplus will be highest under vertical Nash power structure and will be equal under another two power structures.(5)The social welfare is highest under vertical Nash power structure and is equal under another two power structures.